CBO: Deficit to decline to 2.4% of GDP in Fiscal 2015

Economic growth and recent legislation have cut the federal budget deficit in half in the past four years ... the Congressional Budget Office said Tuesday in the annual update of its budget and economic forecast.

The CBO said it expected economic growth to be sluggish in 2013, in part because of a sharp drop in government spending, but it sees a better economy in 2014 as the recovery takes hold.

The federal deficit for the fiscal year ending Sept. 30, 2013, is projected to fall to $845 billion, or 5.3% of gross domestic product, said the CBO, which produces nonpartisan reports on the budget and economy for Congress. That is down sharply from the past four years, which each had deficits exceeding $1 trillion. The 2012 deficit amounted to 7% of GDP.

The CBO projects the deficit will decline to 3.7% of GDP in fiscal 2014, and 2.4% of GDP in fiscal 2015.

Click on graph for larger image.

This graph shows the actual (purple) budget deficit each year as a percent of GDP, and an estimate for the next ten years based on estimates from the CBO.

After 2015, the deficit will start to increase again according to the CBO, but as I've noted before, we really don't want to reduce the deficit much faster than this path over the next few years, because that will be too much of a drag on the economy.